According to the Secret IRS Files, the wealthiest Americans are paying lower taxes despite soaring fortunes. This includes famous billionaires such as Elon Musk, Jeff Bezos, Warren Buffett, and others.
The Secret IRS Files consist of confidential data sourced from Internal Revenue Service files. Anonymous sources leaked the information to ProPublica.
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Secret IRS Files Say Wealthiest Americans Are Legally Paying Less Taxes
ProPublica’s report sent Washington into a frenzy. The federal government called for an investigation of the tax payments. Democrats shifted to an “I told you so” narrative, saying that the report confirmed what they knew all along.
Wealthiest Americans can legally avoid taxes on unrealized profits such as stocks or real estate.
Meanwhile, some tax experts said the ProPublica report meshes with earlier criticism of the US tax system. However, they still remain incredulous about how the wealthiest Americans managed to make tax laws work for them.
“I think this is big because it tells the story of wealth and the way it is taxed in a way everybody kind of expected but didn’t know,” said Philip Hackney, a former IRS official who teaches tax law at the University of Pittsburgh.
Tax System Designed To Benefit Corporations and Wealthiest Americans
In addition, the Secret IRS Files report comes after President Joe Biden said that the US tax system’s design unfairly benefits corporations and the rich.
In fact, a spirited debate is ongoing in Washington on how much money taxes should the wealthiest Americans pay. However, there is little information on how much do individual billionaires actually pay in taxes.
Officially, the White House declined to comment on the report. Press secretary Jen Psaki didn’t say anything other than the report is “an inappropriate disclosure of confidential information” on taxes.
She added that the Treasury Department and the IRS already referred the matter to federal agencies such as the FBI and the US attorney’s office. “Broadly speaking, we know that there is more to be done to ensure that corporations, individuals who are at the highest income are paying more of their fair share.
Hence, it’s in the president’s proposals. His budget and part of how he’s proposing to pay for his ideas will go ahead,” she added.
True Tax Rates
Based on the Secret IRS Files, the wealthiest Americans are paying a “true tax rate” of 3.4%. The media organization based that rate on the value of personal wealth from nontaxable assets such as stocks, real estate, and other assets.
The US taxation system computes taxes based on income not unrealized gains from the above assets.
Jeff Hoopes, a tax expert and associate professor at the University of North Carolina said the US sources taxes from income and not wealth. “These are extremely well-known facts. If you don’t realize [the income], you don’t pay.”
Hackney agreed with the assessment. He also noted that the current tax system puts wage earners at a disadvantage. “We are structured in an unequal way.
The basic game if you’re very wealthy is, hold a lot of wealth, let it go up in value, and generally to support your lifestyle, just borrow money.”
Biden’s Proposals Will Tax The Rich Some More
If Biden will have his way, the top income earners will get a bump from their current tax bracket of 37% to 39.6%. This covers all Americans that earn more than $400,000 a year.
He also wants to raise taxes on capital gains from the current 30% to the same top income bracket rate.
Meanwhile, Senator Elizabeth Warren (D-MA) said that the ProPublica report supports her calls for annual taxes for assets above $50 million for the wealthiest Americans.
She dispelled fears that the annual tax is too complex when valuing non-liquid investments. Warren said that determining the value of the publicly-held stock is easy. “What this shows is, actually, it’s not that hard to value hundreds of billions of dollars of wealth and tax it on an annual basis,” she added.
Tax Records of Warren Buffett
The leaked documents showed tax records of select famous individuals. Legendary investor Warren Buffett paid $23.7 million in federal income taxes on a total income of $125 million from 2014 to 2018. This means he paid a personal income tax rate of 19%.
However, when set against his declared net worth of $24.3 billion during the same period, his “true tax rate” becomes a tenth of a percent (0.10%). Earlier reports noted that Buffett advocated for tougher restrictions on the wealthiest Americans to prevent avoiding taxes.
Buffett issued a reply to ProPublica’s report. He said his company pays a large amount of corporate income tax. He also said he planned to disburse more than 99% of his personal wealth to go to taxes and philanthropy. “I believe the money will be of more use to society if disbursed philanthropically than if it is used to slightly reduce an ever-increasing U.S. debt,” Buffett wrote in the statement.
However, he said that Congress will determine how to proceed, especially if the government decides to pursue changes in US tax policy.
Musk and Bezos
Meanwhile, Tesla CEO and SpaceX founder Elon Musk, the second richest man in the world, paid $455 million in taxes from 2014-2018. He earned $1.52 billion during the period, but his declared wealth is around $13.9 billion. This gives his true tax rate at 3.27%.
Another famous billionaire, Jeff Bezos, the CEO of Amazon, paid $973 million in taxes based on his $4.22 billion income during 2014-2018.
However, Bezos’s wealth soared by $99 billion during the period, which meant his true tax rate was less than a percent at 0.98%. In addition, Bezos filed a tax return in 2011 where he reported he lost money in bad investments. As a result, the government gave him a $4,000 tax credit for his children.
Watch The Young Turks video report on the Secret IRS Files:
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